Sometimes the basic decision making is sound, but is disrupted by situational , cognitive & emotional factors. This is basically witnessed among traders who seek simplicity& wind up trading simplistic setups that ultimately lack any edge.
Consider the following:
- A trader sees a chart pattern on one time frame & decides on that basis to buy/sell
- A trader sees strength or weakness &jumps in to follow the trend
- a trader sees price holding at a certain level & enters a position based on that information.
- A trader hears positive news & buys a stock
- A trader sees that we have moved below a trend line or moving average line & sells the index.
In each case , a single observation is blown up into a full hypothesis.The observation in itself may be valuable, but it lacks the full information that one would need for a promising hypothesis.
Major reason that simplicity in process devolves into simplistic thinking is that traders narrow their field of vision when they are under stress.They focus on what is immediately presented .